NCLAT sets aside CIRP admission as debt below Rs 1 crore threshold after excluding Section 10A moratorium period dues

NCLAT Chennai allowed the appeal and set aside the CIRP admission order. While the tribunal found an operational debt exceeding Rs. 1 crore existed and no pre-existing dispute was substantiated, Section 10A of the IBC barred inclusion of debts from 27 invoices that fell due during the moratorium period (25.03.2020 to 25.03.2021). After excluding these Section 10A period debts, only Rs. 2,86,762 remained from the pre-Section 10A period, falling below the Rs. 1 crore threshold required under Section 4 for CIRP initiation. The operational creditor retains rights to recover dues through other legal means excluding IBC proceedings.

---

---

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether an operational debt exceeding Rs. 1 crore was due and payable by the Corporate Debtor to the Operational Creditor as of the date of filing the petition, and whether the Corporate Debtor defaulted on repaying the same.
• Whether there was a pre-existing dispute regarding the debt between the parties, affecting the maintainability of the petition.
• Whether the initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was barred under Section 10A of the Insolvency and Bankruptcy Code, 2016, and whether the petition was maintainable.

2. ISSUE-WISE DETAILED ANALYSIS

Existence of Debt and Default:

The relevant legal framework involves Section 9 of the Insolvency and Bankruptcy Code, 2016, which allows operational creditors to initiate CIRP if the operational debt exceeds the threshold limit. The Tribunal found that the operational debt claimed by the Operational Creditor was Rs. 1,00,49,270/-, which exceeded the threshold limit of Rs. 1 crore. The debt was acknowledged by the Corporate Debtor in financial statements for the years 2020-2021 and 2021-2022, and the default was recorded in the NeSL portal with a default date of 14.03.2020.

Pre-existing Dispute:

The Tribunal examined whether there was a pre-existing dispute that could bar the CIRP initiation. The Corporate Debtor claimed a dispute over the quality of goods supplied, but the Tribunal noted that no goods were returned, and no disputes were raised within a reasonable period after the supplies. The Tribunal concluded that the claim of a pre-existing dispute was not substantiated with evidence, thus not affecting the maintainability of the Section 9 application.

Application of Section 10A:

Section 10A of the Code prohibits CIRP initiation for defaults occurring between 25.03.2020 and 25.03.2021. The Tribunal analyzed whether the default fell within this period. Despite the Corporate Debtor's acknowledgment of debt post-25.03.2021, the Tribunal found that the default date was 14.03.2020, predating the Section 10A period. However, the Tribunal noted that most invoices fell due during the Section 10A period, and the default on these invoices was distinct and separate from the pre-Section 10A default. Therefore, the Tribunal concluded that the inclusion of these invoices in the debt calculation was barred by Section 10A.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

• The operational debt claimed exceeded Rs. 1 crore, but the inclusion of invoices that fell due during the Section 10A period was barred, reducing the debt below the threshold required for CIRP initiation.
• The alleged pre-existing dispute was not substantiated, and thus did not bar the CIRP initiation.
• The application of Section 10A barred the inclusion of debts that arose during the specified period, and the remaining debt from the pre-Section 10A period did not meet the threshold limit under Section 4 of the Code.

The Tribunal set aside the order of the Adjudicating Authority admitting the Corporate Debtor into CIRP, emphasizing that the debt remains due but cannot be used as a basis for CIRP initiation. The Tribunal allowed the appeal and closed all pending interlocutory applications.

---